- CBA receives APRA endorsement for its plan to address the recommendations of a Prudential Inquiry into the bank’s culture.
- The bank is cutting $60 million from executive pay plans.
- Plan to strengthen governance, culture, accountability, and customer outcomes.
The Commonwealth says prudential regulator APRA has endorsed a Remedial Action Plan in response to the 35 recommendations of the Prudential Inquiry into the bank’s governance, culture and accountability.
The bank is cutting $60 million from the pay of current and former executives.
The Commonwealth was hit with an additional $1 billion capital requirement following the inquiry which found APRA the Commonwealth Bank’s pursuit of success “dulled the senses of the institution”, particularly in relation to the management of non-financial risks.
The inquiry also found a number of prominent cultural themes: “A widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes, and an overly collegial and collaborative working environment which lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes.”
The Remedial Action Plan outlined, but not released, provides a program of change to improve the way the bank runs its business, manages risk, and works with regulators.
- Strengthening governance and oversight
- Achieving better customer and risk outcomes
- Building a more accountable, customer-focused, and transparent culture
- Taking a proactive approach to risk
- Improving execution and delivering the bank’s plan
“Our plan outlines the steps the Board and management will take in response to the Prudential Inquiry’s 35 recommendations to ensure we are a better, more customer-focused bank,” says CEO Matt Comyn.
“We have submitted our plan to APRA and are pleased to have received APRA’s endorsement that it provides a reasonable basis for addressing the Inquiry’s recommendations.
“Work is underway to strengthen governance, culture and accountability within the Commonwealth Bank. We expect to make good progress in delivering the plan over the next 12 months. We recognise that it will take time to demonstrate changes in capability and culture.
“CBA’s Board and executives fully recognise we will not be judged by the plan or by completing milestones, but by sustainable improvements in customer and risk outcomes.”
The Remedial Action Plan also provides a comprehensive assurance framework. Promontory Financial Group has been appointed as the independent reviewer. There will be regular reviews of progress against committed milestones with APRA. CBA will report publicly on its progress against the Remedial Action Plan.
The CBA Board determined that there should be collective and individual accountability for both current and former executives for the Report’s findings, and the poor risk and customer outcomes that have occurred.
Senior executive remuneration consequences will be more than $60 million, from reductions to variable remuneration and/or partial or full lapsing of outstanding deferred variable remuneration awards.
This includes the actions taken by the CBA Board in August last year to reduce Non-Executive Director fees, and reduce to zero the short-term bonuses for senior executives for last financial year.
The APRA inquiry was announced in August 2017 to examine governance, culture and accountability at the bank, following a number of incidents that damaged the reputation and public standing of the bank.
The bank has been caught up in a series of scandals including providing poor financial advice to customers. These are being investigated by the financial services royal commission.
The Commonwealth also faced court action over breaches to anti-money laundering regulations identified by AUSTRAC, Australia’s financial intelligence and regulatory agency. It settled this with a $700 million payment.
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